Currency exchange advice for Brits in France

I have been giving international financial advice for a long time, but before the 2008 financial crisis, currency never featured much. It was always there, but not a major factor and, indeed, my last real currency talks were on pegging the Dutch Guilder to the German Deutsche Mark.

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From a financial planning perspective, I say to keep money in the currency in which it is spent. Eliminate currency risk by not being exposed to it: so, if you live in the Eurozone, hold Euros.

Sadly, it is not that straightforward as the world has gone mad... the UK is leaving the European Union, Scotland could be leaving the UK, Donald Trump is US president and Marine Le Pen could take over at the Elysée Palace.

Le Pen would like to go back to the French Franc and immediately devalue (I feel it would devalue all by itself, as the markets would take care of that).

Greece may default (it will happen when Germany decides it will not affect its plans), not to mention the German elections, which may impact that last one. Those are just a few of the many risks but are arguably the main ones affecting the Euro / Sterling exchange rate.

The concern for many Connexion readers is how all this impacts how many Euros they get for their Pounds, as pensions, UK rental and, maybe even professional income, is in Sterling.

But we have noticed that the current economic climate is leading people to take financial risk in an all-or-nothing bet.

For example, a client called the day before the Brexit vote for my views. I said I was fairly sure the UK would vote to stay in and he said “great, I think so too. I’ll keep all my money in Sterling”.

I asked how a Brexit vote would affect him and he said it would be a catastrophe.

I then asked him to picture the same thing, but having moved half his money to Euros. Perfectly acceptable and manageable was the answer.

The point was that the only certainty we had was that it could go either way, which seems unhelpful but, in reality, covering just two outcomes is not all that difficult.

This is not at all an isolated incident. Generally speaking, people seem ‘happier’ to take risks that, in my view, are unnecessary.

People are driven by the fear of missing out (now commonly abbreviated to FOMO). They may get very close to the very best exchange rate possible, yet are disappointed if a neighbour or friend does better.

Timing the bottom of any market is impossible but many people give us an exact rate at which they would be happy to switch currencies.

A target and an objective are useful but many will consider all the money they have ever earned in their lives and gamble it one way or the other. It sometimes works out well (though sadly I would say in most cases it does not).

By all means, take advice on the direction of currency, but please consider that the world’s best and brightest have been constantly wrong.

Now we have Brexit (arguably very bad for Sterling, at least in the short term). However, we have a plethora of bad news and great potential political risk from the Eurozone (bad for the Euro, which could mean good for Sterling).

Who would bet the farm on the direction of travel either way? What would be more sensible?

Our advice is to consider what rate you can live with and break up the movement.

If you are not happy with the current rate, but it is not a catastrophe, it may be wise to take what you might need for the next three to five years (time to ride out medium-term significant volatility) and leave the rest, but gambling one way or the other often leads to disaster.

When thinking about currency, some will consider talking to currency experts but while this is a good thing and we actively recommend their use, we would say the financial planning angle is also vital. Looking at currency in isolation may not give the answer for your own situation.

This column was written by Robert Kent of Kentingtons financial advisers.